Will Stem Cell Research Lift Pharmaceutical Stock Values?

It was the year 1998 that human embryonic stem cells were first identified. Just nine years after that, a group of scientists in Japan were able to take skin cells and reprogram them with very powerful viruses to create an induced pluripotent stem cell, or what is known today as an IPS cell.

In 2008, a scientist at the New York Stem Cell Foundation (NYCFM) took skin biopsies from people who had ALS disease (motor neuron disease) and turned them to IPS cells and then turned those IPS cells into the motor neurons that were actually dying in the disease. In other words, he took healthy cells and turned them into sick cells and repeated this process again and again many times over. It was actually the first time this was ever done.

What the scientist discovered, as he witnessed the disease unfold many times under the microscope, was that the death of the motor neuron cells was contributed by another cell sending off toxin. In other words, the cause of the disease was much different than what scientists thought it was until that time.

Susan Solomon calls this practice the black box of medicine discovery. Unless you are able to see what is actually happening and witness firsthand the disease unfold under the microscope, you are in the dark as to what the real cause is. Just like airline accident investigators, unless they have the black box, they can only guess as to why a plane goes down.

On average, pharmaceutical companies spend about $4 billion and 13 years before a new drug reaches the market and only about 1% make it (and I have seen data saying that only 1 in 500 drugs make it) to market.

Imagine, however, the benefits if scientists were able to recreate every disease possible in the laboratory and observe how it unfolds under the microscope. For starters, you would not have to spend 13 years in research only to find out in the end that the drug does nothing for the curing disease or, even worst, that it actually harms the patient.

With IPS cells you can actually make an avatar of heart tissue, liver tissue and most tissues in the human body and induce a specific disease to the tissue in order to conduct tests in the laboratory, instead of guessing if the chemical compounds you are experimenting with will work or not.

This opens up a totally new chapter in the way future medicines will be produced. For one thing, companies that will use this method to explore new drugs will be able to shorten the time a drug comes to market.

Another benefit is that the costs will be reduced. Since one can see for himself the disease unfold in real time and in time under the microscope, this reduces the need for animal specimens and even human clinical trials to a great extent. Research expenses will also fall dramatically, which means company profits will increase as well.

According to Susan Solomon in this TED talk, the technology to mass produce IPS stem cells is here today. The NYSCF has produced the world's first Global Stem Cell Array, a new technology that can create thousands of cell avatars and genetically array them to functionalize the human genome. This will revolutionize the way we develop cures and treatments.

The question for us is what does this technology mean to pharmaceutical companies and the whole biotechnology space? I think it means that profits overall will increase by leaps and bounds in the future once this technology becomes commonplace for all.

To begin with, the stem cell market was estimated to be worth about $21.5 billion globally in 2010 and is forecasted to be worth about $64 billion in 2015. One rarely sees that kind of growth in any market segment.

Big pharmaceutical companies such as Pfizer (NYSE:PFE), Novartis (NYSE:NVS), AstraZeneca (NYSE:AZN), Johnson & Johnson (NYSE:JNJ) and GlaxoSmithKline (NYSE:GSK) are already employing stem cell technologies to develop new drugs, while many others like Shire (NASDAQ:SHPG) have begun buying up small development stage companies.

It is not easy to follow this space not only because of the plethora of companies and technologies, but also because things are progressing at the speed of light. Top that off with the fact that one needs to have some medical or biotechnology background (or spend countless of hours of reading to obtain it), it's not easy for the average investor to keep up.

If one does not want to undertake the risk of buying individual stocks, it's probably better to simply buy ETFs like the iShares S&P Global Healthcare Sector Index Fund (NYSEARCA:IXJ) and the iShares Nasdaq Biotechnology Index Fund (NASDAQ:IBB).

One thing is for sure. Stem cell technologies will reduce the cost and time to bring drugs and therapies to market and will dramatically increase profits in the pharmaceutical and biotechnology space. Not only that, but chances are that prices paid by consumers for these new drugs will be much lower. That's a win-win scenario for all of us.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.